Technology, innovation and business model: explaining Google success

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The importance of web search technology, innovation and business model in explaining Google’s success.

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Technology, innovation and business model: explaining Google success

  1. 1. The importance of web search technology, innovation and business model in explaining Google’s success Luís F. A. Guedes School of Economics, Management, and Accounting at University of São Paulo Liliana Vasconcellos Business School, Foundation Institute of Management Eduardo Vasconcellos School of Economics, Management, and Accounting at University of São Paulo Moacir Miranda Oliveira Jr School of Economics, Management, and Accounting at University of São Paulo April, 2009
  2. 2. Introduction Research objective To analyze the importance of web search technology, innovation, and business model towards Google’s key performance indicators This study is focused on the search engine technology and its link to performance factors desired by the users as one of the key factors of Google’s success Research methods • Single case study • Literature review • Interviews with Google’s executives • CEO for Latin America • Google Brazil Communication Director • One Senior Financial Analyst from Financial Department 2 THE IMPORTACE OF WEB SEARCH TECHOLOGY, INNOVATION AND BUSINESS MODEL IN EXPLAINIG GOOGLE’S SUCCESS
  3. 3. Factors influencing success of technology-based firms Key performance Author Metrics indicators Brand value Public image Bae et al (2000) Company value Stock price and evolution Batt (2002); Delaney et al Sales Sales growth (1996); Banker et al Stock price, stock variation in (1996); Roberts (1992) time Local market share (USA) Market share Delaney et al (1996) International expansion Hit et al (2001); Guthrie Productivity Revenues per employee (2001) Arthur (1994); Guthrie Turn over Best Place to Work ranking (2001); Batt (2002) Varma et al (1999); Bae et Market share Product quality al (2000); Delaney (1996) Active clients Profitability Roberts (1992) Profit and Margin 3 THE IMPORTACE OF WEB SEARCH TECHOLOGY, INNOVATION AND BUSINESS MODEL IN EXPLAINIG GOOGLE’S SUCCESS
  4. 4. Google – Company background  Founded in 1998 by Sergey Brin e Larry Page, both PhD students at Stanford  Among the 100 biggest companies in the world (2008)  20.222 employees in 20 offices around the world (2008)  2008 net income: US$4.3B MoT  More than 20 petabytes of information processed each day perspective (~20.000.000 GB)1  10 hours of video sent by minute to YouTube2  US$2,4B spent with infrastructure3  38 data centers worldwide (unofficial)4 Sources: (1) Forbes (Sep, 2007); (2) Oficial Google Blog; (3) Google; (4) Royal Pingdom 4 THE IMPORTACE OF WEB SEARCH TECHOLOGY, INNOVATION AND BUSINESS MODEL IN EXPLAINIG GOOGLE’S SUCCESS
  5. 5. Google – International expansion 159 countries 40 languages 98% of internet traffic 5 THE IMPORTACE OF WEB SEARCH TECHOLOGY, INNOVATION AND BUSINESS MODEL IN EXPLAINIG GOOGLE’S SUCCESS
  6. 6. Search technology and Google’s Success Competitiveness criteria – web search Core web search Incremental technology innovations Response time to a query PageRank Multi language Results accuracy Hipertext support Results relevance matching Spelling check Cloud computing Google suggest MapReduce Universal search Outcome Company value Brand value Management and Profit and margin Business Model Sales growth Stock price and evolution International expansion Market share 6 THE IMPORTACE OF WEB SEARCH TECHOLOGY, INNOVATION AND BUSINESS MODEL IN EXPLAINIG GOOGLE’S SUCCESS
  7. 7. Google BUSINESS MODEL – some general considerations 1. Innovation, brand management and efficient operations are key business factors 2. Google initial success is related to: • an innovative approach to a social need • outstanding technology • consistent business model 3. Market research is not among the initial success factors 4. Today unlikely brand extension products are tomorrow’s cash cows (Google desktop, Google talk, Google Earth…) 5. A strong brand facilitates the international expansion and fosters a strong corporate culture 6. The ability to evolve is the most important managerial goal of all 7 THE IMPORTACE OF WEB SEARCH TECHOLOGY, INNOVATION AND BUSINESS MODEL IN EXPLAINIG GOOGLE’S SUCCESS
  8. 8. Web search and key performance dimensions Google web search core technologies Google web search core technologies Incremental inn Incremental inn Key Performance Key Performance Page Page Hipertext Hipertext Cloud Cloud Map Map Spell Spell Google Google Synonym Synonym Dimension Dimension Rank Rank matching matching computing computing Reduce Reduce check check suggest suggest Search Search Accuracy Accuracy       Celerity Celerity      Relevance Relevance     Google web search core technologies Google web search core technologies in Google web search tools Incremental innovation Incremental innovation in Goog Page Hipertext Cloud Map Key Performance Spell Page Hipertext Synonym Google Universal Geographi- Synonym Google Google Cloud Map Spell Google Safe Google Unive Rank matching computing Reduce Dimension check Rank matching Search suggest computing maps Reduce search cal context Search Scholar check suggest Search maps sear    Accuracy             Celerity             Relevance          8 THE IMPORTACE OF WEB SEARCH TECHOLOGY, INNOVATION AND BUSINESS MODEL IN EXPLAINIG GOOGLE’S SUCCESS
  9. 9. Final remarks: Key firm performance indicators at Google Key performance Google indicators  Brand value: US$25,6B (2008). According Interbrand “Best Global Brands” report, Google is among the top 5 more valuable brands in the world since 2006. Public image  Company value: Google is the 56th biggest company in the world (FT “Global 500 2008”)  2008 revenues from sales doubled the 2006’s and reached US$21B Sales growth  Q4‘08 Y/Y growth: 18%  64% of total US web searches in Dec-08 Market share  In 2008, the majority of the revenue came from abroad.  Revenues per employee grew steadily since 2001, in a compound rate of almost 20% a Productivity year.  Top of the list for 2007 and 2008, and ranked as #4 in 2009 Report “100 Best Companies to Work for in USA” (FORTUNE 500, 2009) Turn over  There were both 777,427 job applications in 2008 and no volunteer turn over at Google USA.  Google’s 2008 net income was about US$4,3B, and represents 19% of the revenues. Profitability Yahoo! net income in 2007 was US$600M (9% of revenues). 9 THE IMPORTACE OF WEB SEARCH TECHOLOGY, INNOVATION AND BUSINESS MODEL IN EXPLAINIG GOOGLE’S SUCCESS
  10. 10. Google’s brand value grew more than 3 times since 2005 Google brand value (US$ billion) 2005 $ 8,46 CAGR: 45% 2006 $ 12,38 2007 $ 17,84 2008 $ 25,59 Source: Interbrand 10 THE IMPORTACE OF WEB SEARCH TECHOLOGY, INNOVATION AND BUSINESS MODEL IN EXPLAINIG GOOGLE’S SUCCESS
  11. 11. Final remarks: Key firm performance indicators at Google Key performance Key performance Google Google indicators indicators  Brand value: US$25,6B (2008). According Interbrand “Best Global Brands” report,  Brand value: US$25,6B (2008). According Interbrand “Best Global Brands” report, Google is among the top 5 more valuable brands in the world since 2006. Google is among the top 5 more valuable brands in the world since 2006. Public image Public image  Company value: Google is the 56th biggest company in the world (FT “Global 500  Company value: Google is the 56th biggest company in the world (FT “Global 500 2008”) 2008”)   2008 revenues from sales doubled the 2006’s and reached US$21B 2008 revenues from sales doubled the 2006’s and reached US$21B Sales growth Sales growth   Q4‘08 Y/Y growth: 18% Q4‘08 Y/Y growth: 18%   64% of total US web searches in Dec-08 64% of total US web searches in Dec-08 Market share Market share   In 2008, the majority of the revenue came from abroad. In 2008, the majority of the revenue came from abroad.  Revenues per employee grew steadily since 2001, in a compound rate of almost 20% a  Revenues per employee grew steadily since 2001, in a compound rate of almost 20% a Productivity Productivity year. year.  Top of the list for 2007 and 2008, and ranked as #4 in 2009 Report “100 Best  Top of the list for 2007 and 2008, and ranked as #4 in 2009 Report “100 Best Companies to Work for in USA” (FORTUNE 500, 2009) Companies to Work for in USA” (FORTUNE 500, 2009) Turn over Turn over  There were both 777,427 job applications in 2008 and no volunteer turn over at  There were both 777,427 job applications in 2008 and no volunteer turn over at Google USA. Google USA.  Google’s 2008 net income was about US$4,3B, and represents 19% of the revenues.  Google’s 2008 net income was about US$4,3B, and represents 19% of the revenues. Profitability Profitability Yahoo! net income in 2007 was US$600M (9% of revenues). Yahoo! net income in 2007 was US$600M (9% of revenues). 11 THE IMPORTACE OF WEB SEARCH TECHOLOGY, INNOVATION AND BUSINESS MODEL IN EXPLAINIG GOOGLE’S SUCCESS
  12. 12. Final remarks: Key firm performance indicators at Google Source: Google 12 THE IMPORTACE OF WEB SEARCH TECHOLOGY, INNOVATION AND BUSINESS MODEL IN EXPLAINIG GOOGLE’S SUCCESS
  13. 13. Final remarks: Key firm performance indicators at Google Key performance Key performance Google Google indicators indicators  Brand value: US$25,6B (2008). According Interbrand “Best Global Brands” report,  Brand value: US$25,6B (2008). According Interbrand “Best Global Brands” report, Google is among the top 5 more valuable brands in the world since 2006. Google is among the top 5 more valuable brands in the world since 2006. Public image Public image  Company value: Google is the 56th biggest company in the world (FT “Global 500  Company value: Google is the 56th biggest company in the world (FT “Global 500 2008”) 2008”)   2008 revenues from sales doubled the 2006’s and reached US$21B 2008 revenues from sales doubled the 2006’s and reached US$21B Sales growth Sales growth   Q4‘08 Y/Y growth: 18% Q4‘08 Y/Y growth: 18%   64% of total US web searches in Dec-08 64% of total US web searches in Dec-08 Market share Market share   In 2008, the majority of the revenue came from abroad. In 2008, the majority of the revenue came from abroad.  Revenues per employee grew steadily since 2001, in a compound rate of almost 20% a  Revenues per employee grew steadily since 2001, in a compound rate of almost 20% a Productivity Productivity year. year.  Top of the list for 2007 and 2008, and ranked as #4 in 2009 Report “100 Best  Top of the list for 2007 and 2008, and ranked as #4 in 2009 Report “100 Best Companies to Work for in USA” (FORTUNE 500, 2009) Companies to Work for in USA” (FORTUNE 500, 2009) Turn over Turn over  There were both 777,427 job applications in 2008 and no volunteer turn over at  There were both 777,427 job applications in 2008 and no volunteer turn over at Google USA. Google USA.  Google’s 2008 net income was about US$4,3B, and represents 19% of the revenues.  Google’s 2008 net income was about US$4,3B, and represents 19% of the revenues. Profitability Profitability Yahoo! net income in 2007 was US$600M (9% of revenues). Yahoo! net income in 2007 was US$600M (9% of revenues). 13 THE IMPORTACE OF WEB SEARCH TECHOLOGY, INNOVATION AND BUSINESS MODEL IN EXPLAINIG GOOGLE’S SUCCESS
  14. 14. Final remarks: Key firm performance indicators at Google Google International Revenues Evolution USA revenues International revenues 18% 22% 29% 34% 39% 43% 47% 51% 82% 78% 71% 66% 61% 57% 53% 49% 2001 2002 2003 2004 2005 2006 2007 2008 Source: Google 14 THE IMPORTACE OF WEB SEARCH TECHOLOGY, INNOVATION AND BUSINESS MODEL IN EXPLAINIG GOOGLE’S SUCCESS
  15. 15. Google’s brand value grew more than 3 times since 2005 Key performance Google indicators Key performance Key performance  Brand value: US$25,6B (2008). According Interbrand “Best Global Brands” report, Google Google indicators indicators Google is among the top 5 more valuable brands in the world since 2006. Public image  Company value: Google is the 56th biggest company in the world (FT “Global 500  Brand value: US$25,6B (2008). According Interbrand “Best Global Brands” report,  2008”)value: US$25,6B (2008). According Interbrand “Best Global Brands” report, Brand Google is among the top 5 more valuable brands in the world since 2006. Google is among the top 5 more valuable brands in the world since 2006. Public image Public image  2008 revenues from sales doubled the 2006’s and reached US$21B “Global 500 Sales growth  Company value: Google is the 56th biggest company in the world (FT “Global 500 Company value: Google is the 56th biggest company in the world (FT  2008”)Y/Y growth: 18% Q4‘08 2008”)   2008of total USfrom sales doubled the 2006’s and reached US$21B 2008 revenues from sales doubled the 2006’s and reached US$21B 64% revenues web searches in Dec-08 Sales growth Market share Sales growth   Q4‘08 Y/Y growth: 18% the revenue came from abroad. In 2008, the majority of Q4‘08 Y/Y growth: 18%   64% of total US web searches in Dec-08 Revenues per employee grew in Dec-08 64% of total US web searches steadily since 2001, in a compound rate of almost 20% a Market share Productivity Market share   In 2008, the majority of the revenue came from abroad. year. In 2008, the majority of the revenue came from abroad.  Revenues per employee grew steadily ranked as #4 in 2009 Reportrate ofBest  Top of theper employee grew steadily since 2001, in a compound rate of almost 20% a Revenues list for 2007 and 2008, and since 2001, in a compound “100 almost 20% a Productivity Productivity year. Companies to Work for in USA” (FORTUNE 500, 2009) year. Turn over  There were both 777,427 job applications in 2008 and no volunteer turn over at  Top of the list for 2007 and 2008, and ranked as #4 in 2009 Report “100 Best  Googlethe list for 2007 and 2008, and ranked as #4 in 2009 Report “100 Best Top of USA. Companies to Work for in USA” (FORTUNE 500, 2009) Companies to Work for in USA” (FORTUNE 500, 2009) Turn over Turn over  There were both 777,427 job applications in 2008 and no volunteer of the revenues.  Google’s 2008 net incomejob applications in 2008 and no volunteer turn over at There were both 777,427 was about US$4,3B, and represents 19% turn over at Profitability Google net income in 2007 was US$600M (9% of revenues). Yahoo! USA. Google USA.  Google’s 2008 net income was about US$4,3B, and represents 19% of the revenues.  Google’s 2008 net income was about US$4,3B, and represents 19% of the revenues. Profitability Profitability Yahoo! net income in 2007 was US$600M (9% of revenues). Yahoo! net income in 2007 was US$600M (9% of revenues). 15 THE IMPORTACE OF WEB SEARCH TECHOLOGY, INNOVATION AND BUSINESS MODEL IN EXPLAINIG GOOGLE’S SUCCESS
  16. 16. Cumulative Total Stockholder Return Google Yahoo! S&P 500 Microsoft Source: BusinessWeek 16 THE IMPORTACE OF WEB SEARCH TECHOLOGY, INNOVATION AND BUSINESS MODEL IN EXPLAINIG GOOGLE’S SUCCESS
  17. 17. Thank you! Luís Fernando A. Guedes lguedes@usp.br

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